Menlo Park voters approved pension reform, but local unions may challenge in court

Menlo Park might seem like a sleepy bedroom community tucked between San Jose and San Francisco, but behind the façade of tree-lined streets, pension payouts are threatening to cripple the municipal government.

This is why Roy Thiele-Sardiña, a local entrepreneur and venture capitalist, pushed for the inclusion of the Menlo Park Pension Reform Initiative on November’s ballot and its eventual passage.

Known as Measure L, the Initiative was designed to lower the impact employee retirement benefit payouts will have on the city’s budget in the future.

Measures designed to reform pensions, like Measure L, are under consideration in communities throughout California and the United States as many states and municipalities are facing bankruptcy if they cannot draw back the commitments they made to their employees.

State pension funds, such as the California Public Employees’ Retirement System, rely on investments as a means of boosting capital. With the stock market in flux, these institutions have not been able to keep up with their commitments, which have increased significantly for several reasons, including longer life expectancies and increasing healthcare costs.

In 2008, nearby Vallejo declared Chapter 9 bankruptcy protection because of mounting pension debts. More than two years later, Vallejo is believed to still have an estimated $200 million shortage in their pension fund.

Thiele-Sardiña was motivated to join the fight to reevaluate Menlo Park’s pension rules to prevent a similar scenario in Menlo Park. “I was watching a city council eat into the reserves of Menlo Park by millions and millions of dollars a year,” Thiele-Sardiña said, “The whole time they’re doing this they’re increasing the pay and increasing the pensions for its employees.”

Thiele-Sardiña is a co-chairman of Citizens for Fair and Responsible Pension Reform, along with local architect Henry Riggs.

Starting in Jan. 2010, they put together a team of volunteers and took a grassroots approach to their fight, often standing outside of grocery stores and other local businesses to campaign for enacting Measure L, a message that proved popular with the electorate.

In November’s election, nearly three quarters of voters in Menlo Park voted to pass Measure L as a means to avert this perceived fiscal disaster.

Newly elected Menlo Park city council member Peter Ohtaki, who supported Measure L in November, echoed this understanding of the issue, saying, “People in Menlo Park think very highly of their city workers. It’s a question more of the costs of funding these benefits.”

The local branch of the Service Employees International Union is afraid of what the precedent set in Menlo Park might mean for their membership. Riko Mendez, political director for Service Employees International Union Local 521, said, “There are some huge implications for this initiative getting implemented as is, not just for the city of Menlo Park or the city of Menlo Park workers.”

Including Menlo Park, 12 California communities considered measures that attempt to reform pensions in November. All except San Francisco’s Proposition B passed – many by large margins, as in Menlo Park.

Ohtaki believes that the initiative in Menlo Park is just beginning for what will likely be a broader statewide fight through the next several election cycles. “I think that you are going to see this reflected in many cities around, quite frankly, the state over the next couple years because CalPERS, the state’s retirement system, will be raising rates substantially in order to cover the losses they incurred on their investment portfolio,” he said.

The Service Employees International Union is considering mounting a legal challenge to the measure. “We haven’t yet made a final decision on whether we are going to do a post-election challenge, although I do think it’s a good idea to move forward with it,” Mendez said. “We do have our lawyers now doing an analysis of what it would cost to move forward with that.”

Mendez said he believes Measure L violates the state constitution. He said, “We think its clear in the state constitution that the right to make a decision and set public employees compensation has been set in the constitution as the responsibility of the elected body, in this case, the city.”

Mendez stipulated that if his union were to move forward with a post-election challenge, they would do so in conjunction with the other union representing Menlo Park city employees, the American Federation of State, County and Municipal Employees.

The two unions filed a pre-election challenge in June. San Mateo County Superior Court Judge George Miram rejected it in August.

Thiele-Sardiña fears another lawsuit from the unions would only further endanger Menlo Park’s fiscal stability. “What offends me is, if and when the union sues, they’re going to force us to spend our city dollars to defend something that 75 percent of the people in Menlo Park want,” he said.

Ohtaki noted that representatives of the American Federation of State, County and Municipal Employees has already agreed to the changes under Measure L. The Service Employees International Union has yet to approve it, which has slowed down the implementation process. Ohtaki believes new employees will be subject to the different rules sometime this year.

Menlo Park, like most local governments, uses most of its budget to support its employees. According to Menlo Park’s 2010-2011 estimates, nearly three-quarters of the city’s money will be spent on personnel this year, more than $23 million.

Measure L increases in the retirement age for city workers from 55 to 60 and lowers the amount that employees can receive as a pension upon retirement from 81 percent to 60 percent of their salaries.

The changes established under Measure L will apply only to new hires and do not affect public safety workers. They will continue to receive pensions based on the old rules.

Thiele-Sardiña believes his organization is prepared for the continuation of this fight but is proud of what he achieved in November.

“If you ask people to vote ‘yes,’ according to the state of California, approximately 15 percent of the voters will vote ‘no,’” said Thiele-Sardiña. “That means a perfect score is about an 85 percent, so we came about as close to a perfect score as you can get.”

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